VAT rise hits consumer confidence

Consumer confidence plunged at its fastest rate in January on the back of the rise in VAT.

According to the Nationwide's latest consumer spending index, confidence among shoppers slumped by 20 points to 70 in January.

This marks the lowest point registered by the index since November 2008 and the steepest decline in confidence since the index first started polling in 2004.

Over a half of those questioned believed that the VAT rise made it a bad time to consider a major purchase, while 22 per cent thought it the wrong time to buy household goods.

Optimism in the wider economy also took a hit, the research suggested.

Confidence among consumers about the future economic situation slid by 10 points. Just 20 per cent of respondents had any hope that the economy would strengthen over the next six months.

Over a third (36 per cent) actually envisaged a deterioration in the economic outlook. Almost a fifth (19 per cent) anticipated a drop in overall household incomes.

There was little faith in current circumstances either. Two-thirds felt that the present economic situation was bad, up four points on the figure for the December index.

Robert Gardner, Nationwide's chief economist, said: "Household confidence remained in the doldrums in January, with the main index falling towards the all time lows recorded during the recession.

"This follows a small bounce in December and confirms that consumers are still feeling very subdued about their own personal circumstances.

"Consumer perceptions are likely to have been dented by the rise in VAT and the upward pressure on inflation more generally, with rising prices for petrol and other essentials likely to have been recorded during the month. This will have put further pressure on household budgets in January."